Insmed Incorporated — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted.
Business context
Insmed is a biopharmaceutical company whose first commercial product, ARIKAYCE, received U.S. accelerated approval in September 2018 for a limited population of adults with refractory MAC lung disease. U.S. commercial shipments began in October 2018. Its clinical-stage pipeline includes INS1007 for non-CF bronchiectasis and other inflammatory diseases, and INS1009 for rare pulmonary disorders including PAH.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net revenue | $38.9 | $0 | $90.8 | $0 |
| Cost of product revenue, excluding intangible amortization | $6.4 | — | $15.5 | — |
| Research and development | $34.3 | $39.5 | $99.1 | $105.4 |
| Selling, general and administrative | $53.3 | $44.4 | $160.6 | $114.3 |
| Operating loss | $(56.5) | $(84.0) | $(188.2) | $(219.6) |
| Net loss | $(60.7) | $(87.7) | $(201.3) | $(232.7) |
| Diluted loss per share | $(0.68) | $(1.14) | $(2.43) | $(3.03) |
| Operating cash used | — | — | $(206.2) | $(187.8) |
Q3 gross margin on product revenue, before intangible amortization, was approximately 83%; nine-month gross margin on the same basis was approximately 83%. These are calculated from reported revenue and product cost and are not company-presented margin measures.
At September 30, 2019, cash and cash equivalents were $535.6, versus $495.1 at December 31, 2018; working capital was $510.2. Total assets were $763.1 and total liabilities $459.1. Convertible notes had $450.0 principal outstanding, a 1.75% coupon and a 2025 maturity; their net carrying value was $331.0. Operating lease liabilities totaled $43.4. The company raised $261.1 net from a common-stock offering in Q2 2019.
Nine-month investing cash use was $29.2, mainly for the new headquarters and manufacturing capacity build-out. Financing provided $276.0, principally from the stock offering. Cash increased by $40.6 over the first nine months.
Material changes and notable items
- ARIKAYCE generated $38.9 of Q3 revenue: $37.8 from U.S. sales and $1.1 from early access programs. Nine-month revenue was $90.8, including $87.8 U.S. and $3.0 early access program revenue. There was no comparable 2018 product revenue because the U.S. launch began in October 2018.
- Q3 and nine-month net losses narrowed year over year, while revenue began contributing to results. SG&A rose 20% in Q3 and 41% year to date, primarily from commercialization-related external costs, milestones and higher headcount.
- R&D decreased 13% in Q3 and 6% year to date. Management attributed much of the decline to manufacturing costs moving into inventory and Patheon construction costs being recorded as assets rather than R&D expense; clinical development and personnel costs increased.
- Fixed assets rose to $53.0 from $22.6, mainly reflecting $29.7 of construction in progress for Patheon manufacturing capacity and the headquarters. Adoption of the new lease standard added $47.4 of right-of-use assets and lease liabilities at adoption.
- Gross product revenue was concentrated: three customers represented 31%, 28% and 21%, respectively, of nine-month gross product revenue.
Outlook, risks and contingencies
- Management said available funds were sufficient for at least the next 12 months, while also expecting continued operating losses and substantial cash needs. It may seek additional funding through equity, debt or strategic transactions; access and timing depend on business progress and market conditions.
- Priorities include the U.S. ARIKAYCE launch, European and Japanese regulatory efforts, clinical development, and product supply expansion. The European marketing application was filed in July 2019 and validated; Japanese regulatory filings were expected in the first half of 2020.
- Top-line results from the completed 256-patient Phase 2 WILLOW study of INS1007 were expected in Q1 2020. The required ARIKAYCE confirmatory study remains under discussion with FDA and depends on verification of a patient-reported outcome tool; full approval is contingent on confirming clinical benefit.
- Key risks include ARIKAYCE adoption, reimbursement and pricing, maintaining accelerated approval and completing confirmatory requirements, clinical and regulatory outcomes, manufacturing and supply dependence, and the need for additional capital. The filing reported no material changes to previously disclosed risk factors.
- Management did not expect ordinary-course legal proceedings to have a material adverse effect. No material changes to contractual obligations outside the ordinary course were reported.
Important facts for investors to verify
- ARIKAYCE sales trajectory, net pricing, access and reimbursement, and the effects of customer concentration and revenue deductions.
- Whether commercialization spending and operating cash burn remain consistent with the stated liquidity runway and whether further financing is needed.
- Progress on the ARIKAYCE confirmatory trial, PRO-tool validation, full-approval requirements, and European and Japanese regulatory plans.
- WILLOW results and subsequent development plans for INS1007, as well as decisions on advancing INS1009.
- Manufacturing capacity, third-party supplier performance, and the timing and cost of the Patheon and headquarters projects.
- Convertible-note terms and future dilution exposure; the filing lists 11.5 million shares reserved for potential conversion and reports 89.3 million common shares outstanding at September 30, 2019.